Tag: review

Book Review: Radical Markets

In Radical Markets – Uprooting Capitalism and Democracy for a Just Society (Amazon,) the authors propose a number of “radical” ideas to fix democracy and capitalism. It is a riveting read, especially if you find the current system lacking in a number of areas.

Two ideas that stood out:

  1. To fix corruption in property assessments for taxation, allow owner self-assessments, publish those prices and allow anybody to pay that price to the owner and occupy the property. Radical but effective!
  2. Get rid of one-person-one-vote by allowing people to trade their “voice credits.” The buyer of these voice credits owns a square-root of those may votes. For example, if someone is very passionate about building a steel fly-over, they can start buying these VCs from citizens who are indifferent to it. A 100 such VCs translate to 10 votes in favor. This can then be defeated by 11 individual voters who cast one vote each. A near perfect solution to make sure that minority voices are not swamped by majoritarian rule while still making sure that the majority carries!

Some of the ideas around trading VCs and voting mechanisms can be implemented within smaller groups – apartment building associations, for example – right away. However, the ideas around immigration might never see the light of day. The book is worth a read even if you are not looking for radical ideas – the authors set the current problems that our systems face in their historical context.

The logical end point of institutional investment and diversification is the coordination of all capital to extract maximum wealth from consumers and workers.
A simple but Radical reform can prevent this dystopia: ban institutional investors from diversifying their holdings within industries while allowing them to diversify across industries.

Recommendation: Must Read!

Book Review: Den of Thieves

In the Den of Thieves (Amazon,) author James B. Stewart provides a play-by-play of the rise and crash of Wall Street in the 80’s.

The 80’s were a beginning of a new era. The US government/administration was chock full for laissez faire free-marketers. Regan was at the helm and regulations were considered the enemy. Wall Street got punch drunk on junk bonds, leveraged buyouts, insider trading, portfolio insurance and what not. Investment bankers and traders mostly viewed the banks they worked for as a way to get rich personally – damn the “franchise.”

What really got on the SEC’s nerve was insider trading in stocks. For one, it was happening in the market they had total regulatory oversight over. And two, it was eroding the trust of retail investors in the market. So the SEC decided to stake everything on the one thing it could do – bring people who traded on inside information to justice.

And unlike the regulators of today, they did not shy away from sending some of those traders to jail.

Baird was immediately struck by the similarities between the insider-trading investigations and the Mafia cases he’d worked on. Like organized crime, the Wall Street suspects prized silence and loyalty over any duty to tell the truth and root out corruption. He assumed that a Goldman, Sachs partner, for example, would go to jail rather than implicate another partner at the firm. Also, as in organized crime investigations, there were numerous interlocking cases, and not enough investigators to pursue all the leads.

Sadly, nothing much changed. The junk-bond mania was followed by the dot-com bubble followed by the credit crisis. And the number of people who were actually punished for financial crimes kept going down. Rinse, repeat.

The book runs to almost 600 pages and is about the 80’s. So, it is not for everyone.

Recommendation: worth a read.

Book Review: The Discipline of Market Leaders

The Discipline of Market Leaders (Amazon,) is about the importance of focusing on either one of cost, innovation, or service.

A company cannot be everything for everybody. It can be a highly efficient low-cost provider of a utility, or it could be a high-cost provider of innovative products, or it could be so close to its customers that they stick with it for its superior service.

The general message of the book could be useful for investors in old-economy stocks. Figuring out how a company scores along these drivers of value could help in evaluating the robustness of the “moat.”

However, things change. Consider this chart from Understanding Abundance:

Along with cost/innovation/service, in the age of abundance, companies need to also choose between being a “utility” business or a “pointy” business. The drivers of value have shifted.

All said, the book was published in the late-90’s and hasn’t aged well. The examples are dated and some of the exemplar companies have gone bankrupt.

Recommendation: Skip it.

Book Review: A First-Class Catastrophe

A First-Class Catastrophe (Amazon,) is about Black Monday – October 19, 1987 – the worst day in Wall Street history when the market fell 22.6%. The author, Diana B. Henriques, presents a thoroughly researched, yet revetting account of why it happened, the key players and why it will happen again.

The actual lesson is that human beings do not cope well in a crisis when speed, complexity, secrecy, and fear all batter our emotions at the same time. We panic — or, most of us do. We are not the cool, rational investors postulated in academic theories, and we never will be.

The problem is that US regulators continue to approach the markets in a piecemeal manner that make wholesome regulations impossible to achieve. As long as they are more focused on protecting their turf, the markets are stuck in a doom loop.

Recommendation: Worth a read.

Book Review: Bad Blood

In Bad Blood: Secrets and Lies in a Silicon Valley Startup (Amazon,) author John Carreyrou chronicles the fraud that was Theranos.

For those who don’t know about Theranos, it was a Silicon Valley unicorn that claimed to have invented a device that would run over 200 diagnostic tests on single drop of your blood. A pin-prick was all that took. Turned out that they had invented no such device. But that didn’t stop them from selling it to drug chains and supermarket stores and conducting over a million blood tests. The author was instrumental in blowing its cover at the Wall Street Journal. Theranos subsequently recalled the results of all of its tests and has recently decided to dissolve itself after top executives were indicted for defrauding investors.

Hardware is hard. Healthcare is harder still. It takes over 10 years and $2 billion to get a drug to market. There is a reason for that. The first goal is healthcare is to “do no harm.” Trying to mesh this with the Silicon Valley ethos of “build fast and break things” is a recipe for disaster. You cannot code away bottlenecks created by physics, biology and chemistry that easily. To make matters worse, the Theranos CEO seemed to have embraced two other adages – “fake it till you make it” and “better to ask for forgiveness than to wait for permission.” Works fine when you are trying to sell an app.

The Valley is full of stories about how many big software companies that we know today would never have existed if they had played it straight. There is this story about Oracle labeling the buggy first version of its database as “version 2” (because nobody would buy version 1.0) and sending a team of engineers to get it working on the client site (they sold it as a “product” because it would allow them to charge more, but in effect, it was really a service that required an on-site team.) Then there is Uber that brazenly broke taxi regulations everywhere and then hired lobbyists to change them in its favor. However, the stories that are celebrated are that of survivors. Those who couldn’t “make it” or couldn’t successfully get “forgiveness” ended up being shuttered and forgotten.

Key take-ways form the Theranos saga:

  • The board of directors have a duty to keep the CEO on the straight and the narrow.
  • Investors should at least talk to a few of a company’s customers before committing capital to it.
  • High staff turnover is a red flag.
  • Not having a full-time CFO in a large company is another red flag.
  • Deals not turning into revenue and revenue not turning into cash in the bank is the reddest flag.

Recommendation: Read it now!